Section 14, Financial Information Concerning School Nutrition Funds

Transcription

1 Section 14, Financial Information Concerning School Nutrition Funds Section 14 Update Guide April 3, 2018 Updated Section 14, Financial Information Concerning School Nutrition Funds to incorporate the following United States Department of Agriculture (USDA) guidance: - USDA Memo SP , Local School Wellness Policy: Guidance and Q&As (April 6, 2017) - USDA Memo SP , Indirect Cost Guidance (September 30, 2016) Moved guidance on student account balances to Section 15, Meal Pricing and removed from Section 14, Financial Information Concerning School Nutrition Funds Clarified information on the following topics: - /Unallowable costs related to the following Fresh Fruit and Vegetable Program Implementation of the local wellness policy Insufficient check charges Meal production related activities Mobile or temporary sites Supplies, expendable items and other supplies Transportation Uniforms - Capital expense - Check charges - Compliance - Equipment/property disposal - Financial report - Indirect rate - Program integrity - Single audit March 13, 2017 March 7, 2017 February 23, 2017 Updated Section 14, Financial Information Concerning School Nutrition Funds to correct dates. Updated Section 14, Financial Information Concerning School Nutrition Funds to address date typos. Updated Section 14, Financial Information Concerning School Nutrition Funds to incorporate the following United States Department of Agriculture (USDA) guidance: - USDA Memo SP , Indirect Cost Guidance (September 30, 2016) - USDA Memo SP , 2016 Edition: Overcoming the Unpaid Meal Challenge: Proven Strategies from Our Nation s Schools (September 19, 2016) - USDA Memo SP , Unpaid Meal Charges: Guidance and Q&As (September 16, 2016) - USDA Memo SP , Unpaid Meal Charges: Clarification on Collection of Delinquent Meal Payments (July 8, 2016) Texas Department of Agriculture April 3, 2018 Financial Information 14.1

2 - USDA Memo SP , Unpaid Meal Charges: Local Meal Charge Policies (July 8, 2016) - USDA Memo SP 40, 2016, Updated Guidance: Contracting with Food Service Management Companies (June 2, 2016) - USDA Memo SP , Nonprofit School Food Service Account Nonprogram Food Revenue Requirements (December 23, 2015) Clarified information on the following topics: - Additional Texas financial resource - Bad debt - Cost sharing - Costs, meal accommodation - Costs, translations - Direct and indirect costs - Education Service Provider (ESP) - Nonprogram costs - Regulatory authority - Revenue - Universal free feeding programs - USDA Foods April 26, 2016 Updated Section 14, Financial Information Concerning School Nutrition Funds to incorporate the following United States Department of Agriculture (USDA) guidance: - 2 CFR, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (January 1, 2015) - USDA Memo, SP , Local Food and Related Activities in Summer Meals with Questions and Answers (November 12, 2015) - USDA Memo SP , Questions and Answers on the Transition to and Implementation of 2 CFR Part 200 (October 30, 2015) Clarified information on the following topics: - and unallowable costs - Audit - Income to the program, catering - Excessive fund balance - Excessive operating balance - Exclusive contracts - Financial audit - Loans - Locally purchased food - Nonprogram/program food proportion - Pass-through entities - Payroll or employee salary and wage certification and documentation - Program integrity Texas Department of Agriculture April 3, 2018 Financial Information 14.2

3 - Program revenue - Records retention May 4, 2015 Updated Section 14, Financial Information Concerning School Nutrition Funds to incorporate the following United States Department of Agriculture (USDA) guidance: - 2 CFR Part 200 (December 19, 2014) - USDA Memo SP , Farm to School and School Garden Expenses (November 12, 2014) - USDA Memo SP , Assessing Proposed Nutrition Education Costs in the National School Lunch Program and School Breakfast Program (November 18, 2014) - USDA Memo SP , School Garden Q&As (July 29, 2009) Clarified information on the following topics: -, allocable, reasonable, and necessary costs - Audits - Cafeteria monitors - Capital expenses - Consistent payment practices - Depreciation - Equipment use, inventory, and disposal - Excessive balance - Expenditures (costs) - Farm to school, school farm or garden - Financial audits Financial Report - Indirect costs - Memberships, subscriptions, or professional publications - Net Cash - Nutrition education expenses - Land purchases - Loans - Loss of equipment - Proportional program/nonprogram revenue - Record related to employee salaries and wages - Rental or usage fees - Revenue - State matching funds - Student account balances - Source of bill payment - Supplies - TDA forms - Unit cost Texas Department of Agriculture April 3, 2018 Financial Information 14.3

4 - Use of facilities for nutrition programs for the elderly - Utilities - Vending August 1, 2014 Updated Section 14, Financial Information Concerning School Nutrition Funds to incorporate the following United States Department of Agriculture (USDA) guidance: - 2 CFR, Part USDA Memo SP , Guidance on the Food Donation Program in Child Nutrition Programs (February 3, 2012) - USDA Memo SP , Child Nutrition Reauthorization 2010: Indirect Cost Guidance (July 7, 2011) - 7CFR, Part 3016 Clarified information on the following topics: - and Unallowable Costs - Audit Requirements - Capital Expenditures - Compliance - Definitions that apply to financial issues - Excessive Fund Balance - Excessive Operating Balance - Loans - Payroll or Employee Salary and Wage Certification and Documentation - Program Revenue - Records Retention - SNP Food Donations - TDA Forms Texas Department of Agriculture April 3, 2018 Financial Information 14.4

5 Table of Contents Additional Guidance on Financial Issues Regulatory Authorities Educational Service Provider (ESP) Program Integrity and Internal Controls Monitoring Program Integrity Effective Accounting Systems Accounting System Qualities Accounting Practices Audit Practices Definitions for This Section Revenue (Income to the Program) Types of Revenue Catering Fundraising Funds Raised by Recycling Investments Revenue from Meal Service That Incudes USDA Foods End of Year Fund Balance (Net Cash Resources) Excessive Fund Balance (Net Cash Resources) Excessive Balance (Net Cash Resources) Calculation Resolving an Excessive Fund (Net Cash Resources) Balance Special Guidance, Excessive Fund Balance (Net Cash Resources) Reimbursement Rates State Matching Funds Expenditures (Costs) Direct or Indirect Costs Direct Cost Indirect Cost Questions Related to Determining Direct or Indirect Costs Method for Calculating Indirect Costs Indirect Costs, Contracts or Purchases Exceeding $25, Indirect Costs, Equipment and Capital Expenditures Indirect Costs, Fundraising Texas Department of Agriculture April 3, 2018 Financial Information 14.5

6 Indirect Rate, Texas Local Education Agencies (LEAs) and Texas Charter Schools Indirect Rate, Private Schools and Residential Child Care Institutions (RCCIs) Indirect Rate, Consistent Application Lower Indirect Rate for SNP Factors Affecting the Allowability of Costs Reasonable Allocable Consistency Is the Cost? Unit Cost Maximum General Expenditures and Unallowable Costs Advertising, Disposal of Surplus Materials Advertising, Outreach Advertising, Procurement Advertising, Recruitment Contributions Equipment, Disposal of Equipment Supplies, Expendable Items and Other Supplies Equipment, Nonexpendable Items Equipment, Office Equipment Equipment, Office Equipment, Cell Phone Equipment, Computers Facilities, Improvement, Rearrangement, and Reconversion Facilities, Insurance Facilities, Land Purchase, Acquisition, and Construction Facilities, Mobile or Temporary Sites Facilities, Rental of Facilities or Equipment Facilities, Security Facilities, Services Facilities, Utilities Financial, Audits Financial, Cost Sharing Financial, Depreciation Financial, Improperly Procured Products or Services Financial, Interest Texas Department of Agriculture April 3, 2018 Financial Information 14.6

7 Financial, Scholarship Financial, School Improvement Food Operation, Food Service Fundraising, Actions to Raise Funds for the Program Insufficient Check Charge Legal Expenses, Attorney s Fees Legal Expenses, Fines and Penalties Lobbying, Political Activities and Events Meal Accommodation Outreach and Public Relations, Committees Outreach and Public Relations, Incentives/Prizes to Participating Families Outreach and Public Relations, Promotional Materials Program Operations, Printing and Reproduction Equipment or Services Staff, Cafeteria Monitor Staff, College Credits Staff, Employee Recognition Staff, Entertainment Staff, Fringe Benefits Staff, Health and Welfare of Employees Staff, Labor Staff, Memberships, Subscriptions, and Professional Publications Staff, Personal Use Staff, Severance Pay Staff, Training and Conferences Transportation, Meal Production Related Activities Travel, Conferences and Training Special Situations, and Unallowable Costs Allocable Cost Charged to Other Federal Awards Bad Debt Bad Debt, Outstanding Student Debt Changing Funding Source for a Payment Employee Timekeeping Capital Expenditures Equipment/Property, Care and Maintenance Equipment/Property, Disposal Texas Department of Agriculture April 3, 2018 Financial Information 14.7

8 Local Wellness Policy Nutrition Education Expenses Universal Free Feeding Programs Farm to School and School Farm or Garden Expenses and Revenue Supplies or Equipment for School Farms or Gardens Building Structures Intergovernmental Agreement Procured Farm to School Products Sale of Produce from a Garden Funded by the SNP Use of Fresh Fruit and Vegetable Program Funds (FFVP) Proportion of Program/Nonprogram Revenue and Food Cost Revenue Nonprogram Revenue Costs Cost for Each Meal Steps for Calculating Proportion of Program/Nonprogram Revenue Adjusting the Proportion for Program/Nonprogram Revenue/Costs Different Nonprogram Foods Direct or Indirect Charges Special Circumstances Exclusive Contracts Loans from the SNP Account to the CE Interest Loan Stipulations Loan Records Retention Loans from the CE Account to the SNP, Retroactively Determined As a Loan Financial Single Audit Requirement Records Reviewed in a Single Audit General Accounting Documentation Staff Cost Documentation Food Production Documentation Program Participation Documentation Financial Single Audit Due Date Financial Single Audit Due Date Reminder Texas Department of Agriculture April 3, 2018 Financial Information 14.8

9 Financial Single Audit, Public School Districts Financial Single Audit, Program Specific Audit Other Audits Federal Audit Clearinghouse Requirement for Single Audits CE Response to Single Audit Findings, Corrective Action Plan Calendar Day Claim Rule Using School Meal Facilities for the Elderly Nutrition Programs or Other Non-School Nutrition Programs Financial Report TDA Forms Records Retention Employees Equipment/Property Disposal Excessive Fund Balance (Net Cash Resources) Financial Management Income and Costs Indirect Rate Locally Purchased Food Pass-Through Entities Compliance Obligation of the Contracting Entity (CE) to Report Fraud, Bribery, and Gratuity Violations Criminal Penalties Associated With Mishandling of Funds Termination of the Permanent Agreement for Financial Fraud or Misuse of Funds Termination of the Permanent Agreement for Noncompliance with Audit Requirements Unacceptable Audit Notification Extenuating Circumstances Unacceptable CE Response to Audit Findings Texas Department of Agriculture April 3, 2018 Financial Information 14.9

10 Information Boxes and Charts Information Box 1, Guidance on Program Accounting and Financial Systems Excessive Balance (Net Cash Resources) Calculation Chart Indirect Cost Calculation Chart Information Box 2, Resourses for Depreciation Farm to School/School Gardent Cost Assessment Chart Program/Nonprogram Revenue and Food Cost Proportion Calculation Chart Information Box 3, Records Retention Texas Department of Agriculture April 3, 2018 Financial Information 14.10

11 Contact Information for the Texas Department of Agriculture (TDA), Food and Nutrition When contacting TDA by phone, Contracting Entities (CEs) need to have their CE Identification Number (CE ID) (and site ID, if applicable). CEs should include their name and CE ID (and site name and ID if applicable) in all communication or documentation. 3/1/18 General Contact Information Physical Address: 1700 N. Congress, 11th Floor, Austin, TX Mailing Address: PO Box 12847, Austin, TX Phone: 877-TEXMEAL, (877) Fax: (888) Contact: Website: Contact for Issues Related to Applications Child & Adult Care Food Program: National School Lunch Program, School Breakfast Program, & Special Milk Program: Seamless Summer Option: Summer Food Service Program: Contact for Issues Related to Program Operation Community Operations (Child & Adult Care Food Program & Summer Food Service Program): Commodity Operations: Local Products: Procurement, Including Sole Source: School Operations (National School Lunch Program, School Breakfast Program, & Special Milk Program): TX-UNPS Direct Certification Direct Verification System: Contact for CE Flexibility Options Breakfast Waiver: Excessive Balance Plan: Gender Exception: Grains Exemption: Milk Exemption: Milk Substitute Notification: Paid Lunch Equity (PLE) Exemption: RCCI Age/Grade Group Meal Pattern Flexibility: Seamless Summer Operation (SSO) Age/Grade Flexibility: Child Nutrition Program Requirement Waiver: Summer Mandate: Texas Department of Agriculture April 3, 2018 Financial Information 14.11

12 Financial Information Concerning School Nutrition Program Funds School Nutrition Program (SNP) accounts are required to comply with generally accepted accounting principles (GAAP) for federally funded programs as well as accounting and financial requirements that are specific to the SNP. This section provides information on accounting and financial requirements for the following programs: National School Lunch Program (NSLP) Afterschool Care Program (ASCP) Seamless Summer Option (SSO) Fresh Fruit and Vegetable Program (FFVP) School Breakfast Program (SBP) Special Milk Program (SMP) While the guidance in this section applies to public and charter schools, private schools, and residential child care centers (RCCIs), some types of organizations may have different requirements. Those differences are noted when they apply. However, each type of CE is expected to adopt financial practices that align to all applicable regulatory guidance. Information Box 1 Guidance on Program Financial Issues The following federal publications provide detailed guidance on accounting and financial requirements: United States Office of Management and Budget (OMB), 2 CFR, Subtitle A, Chapter II, Part 200 Uniform Administrative Requirements, Costs Principles, and Audit requirements for Federal Awards, available at United States Department of Agriculture (USDA), Financial Management Child and Adult Care Food Program, 796-2, Rev. 4, available at United States Department of Agriculture (USDA), USDA Memo SP , Indirect Costs: Guidance for State Agencies and School Food Authorities, available at Texas Comptroller of Public Accounts, State of Texas Contract Management Guide (September 1, 2016), available at act-management-guide.php Texas Education Agency (TEA), Financial Accountability System Resource Guide, available at y/financial Accountability_System_Resource_Guide/ Texas Education Agency (TEA), Indirect Cost Rate Guidance and Worksheet, available at Compliance_and_Reporting/Indirect_Cost_Rates/Indirect_Cost_ Rates/ Institute for Child Nutrition (ICN), ICN Financial Management Information System, 2ND Edition (2015), available at Texas Department of Agriculture April 3, 2018 Financial Information 14.12

13 Additional Guidance on Financial Issues CEs may find the following Administrator's Reference Manual (ARM), sections useful to review in addition to the guidance in this section: Section 15, Meal Pricing Section 16, Confidentiality and Program Integrity Section 17, Procurement Section 22, Food Service Contracts In order to meet this requirement, contracting entities (CEs) must have an accurate, efficient financial management system that applies sound and consistent management practices that allows CEs to Identify all funds received and expended by program. Identify the source and application of school nutrition program funds. Ensure effective control over, and accountability for, all funds, property, and other assets. Provide accurate, current, and complete disclosure of financial and accounting system as required. Operate under specific written procedures for determining the allowability of costs. Regulatory Authorities The majority of CEs across Texas are governed by the financial regulations of more than one federal, state, or local agency. If the funds to be used come to the public school or charter school from United States Department of Agriculture (USDA) through the Texas Department of Agriculture (TDA) or the funds come from income from the operation of a Child Nutrition Program (CNP), the CE must follow all applicable USDA regulations. If another governing agency has a more restrictive requirement, the CE must apply that requirement as long as it does not conflict with USDA regulation. This applies to all financial transactions, including procurement. Private schools and residential child care centers (RCCIs) may fall under the regulatory authority of a wide range of different federal, state, and local agencies. Public schools and charter schools most commonly fall under two federal regulatory funding sources (1) education funds coming from the United States Department of Education (ED) and the Texas Education Agency (TEA) and (2) food and nutrition funds from the USDA and TDA. Fortunately, funds coming from ED and USDA are both subject to the recently updated Code of Texas Department of Agriculture April 3, 2018 Financial Information 14.13

14 Federal Regulations (CFR), Part 200, 1 so most requirements are the same. However, there are a few conflicts that are stipulated by legislation specific to the program. When the funding source for the activity comes from USDA/TDA or the CE s operation of a CNP, the CE must follow USDA/TDA regulations. CEs need to be aware of this possibility as they design their procedures and processes for handling all financial issues. Educational Service Provider (ESP) If a CE (school district, charter school, private school, or RCCI) has assigned administrative responsibility to an education service provider (ESP) 2 for the operation of all functions, the ESP may be given operational authority; however, the CE must retain responsibility to ensure that all financial requirements for the program are met. Program Integrity and Internal Controls The CE s financial management system must promote program integrity and establish internal controls. Program Integrity is defined as an organized and structurally sound financial management system that promotes program efficiency and prevents the inappropriate use of program funds. This type of financial management system provides safeguards that improve the stewardship of program income and costs and reduces fraud and improper payments by the use of internal controls. When program integrity is applied to a financial management system, Internal controls means a process designed to establish and maintain effective oversight or internal control over the SNP s financial management system that provides reasonable assurance that the CE is managing the program in compliance with all federal, state, and local regulations and terms and conditions of the program award. The CEs financial management system must have written procedures that describe its (1) method for determining if a cost is allowable, (2) process for making payments, and (3) procurement procedures 3 as well as (4) records that clearly report all financial transactions. 1 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards 2 Authority for ESPs to manage education and other operations for a school district or charter school is given by the Texas Education Agency; authority for an RCCI by the agency with regulatory authority for the RCCI; and authority for private schools by the governing board. 3 A CE s written process will include procurement. See the Administrator's Reference Manual, Section 17, Procurement for additional information on written procurement procedures. Texas Department of Agriculture April 3, 2018 Financial Information 14.14

15 The financial transactions described in this section are also subject to the procurement regulations described in the Administrator's Reference Manual, Section 17, Procurement. CEs must also use that guidance in addition to the guidance in this section for their financial transactions. Monitoring Program Integrity While there are many practices a CE may implement to promote program integrity, there are state and federal regulations that also require that TDA take an active role in ensuring that all SNPs operate with program integrity. At a minimum, each CE will participate in the following efforts to ensure program integrity. Administrative Review of SNPs Conducted by TDA TDA reviews the operational practices, including resource management or financial operations, of each CE at least once every three years. Reviews may also be conducted more frequently based upon TDA s risk assessment. Procurement Review of SNPs Conducted by TDA TDA reviews the CE s procurement practices at least once every three years. Reviews may also be conducted more frequently based upon TDA s risk assessment. Single Audit of CE s General Accounting Practices Administered as required by Texas Education Agency (TEA) and conducted by a third party auditor The third party auditor assesses the CE s general financial management system, including the financial management of nonprofit school food service account funds, each year. TDA reviews the CE s single audit documentation to ensure that the CE is in compliance with all CNP requirements. Administrative Financial Review Conducted by TDA TDA reviews the CE s financial management system focusing on financial transactions related to SNP operation at least every three years. Reviews may also be conducted more frequently based upon TDA s risk assessment. TDA endeavors to conduct each type of review within the same program or fiscal year. Texas Department of Agriculture April 3, 2018 Financial Information 14.15

16 Well-designed internal controls will result in the following qualities: Effectiveness and efficiency of operations Trackable method to reconcile all financial transactions, including but not limited to, bank statements and claims Method to maintain accountability for assets Reliability of reporting for internal and external use Preparation of reliable financial statements and reports Safeguards for the loss from unauthorized use or disposition of funds, property, and other assets which safeguarded against loss from unauthorized use or disposition which includes, but is not limited to, the following: Segregation of financial duties Restricted access to information, i.e., one person does not control all financial operations without oversight Edit check mechanisms built into all financial managements operations Compliance with applicable laws and regulations. Demonstrate compliance with federal, state, and local statutes, regulations, and the terms and conditions of the program award Prompt action when instances of noncompliance are identified including, but not limited to, noncompliance identified in audit findings. A CE s internal controls are expected to be in compliance with the Standards for Internal Control in the Federal Government 4 issued by the Comptroller General of the United States or the Internal Control Integrated Framework 5 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 4 Available at 5 Available at Texas Department of Agriculture April 3, 2018 Financial Information 14.16

17 Effective Accounting Systems CEs must consider the following financial management standards in developing a financial management system: Accounting System Qualities 1. Documentation that demonstrates accurate, current, and complete disclosure of the program s financial transactions including budgeted authorizations, obligations, unobligated balances, assets, liabilities, and expenditures as well as income or revenue 2. Procedures that ensure that no one person has complete control over all aspects of financial transactions 3. Methodology that allows for the comparison of actual expenditures against budgeted amounts [NOTE: Any time a projected budget line is within 20 percent of or exceeds 20 percent of the maximum amount projected, the CE must have a method to evaluate the projected amount and see if a correction needs to be made. If a transfer of funds from one cost line to another is warranted, the CE may adjust the projected budget as long as documentation demonstrates where, why, and when funds are moved.] Accounting Practices 4. Procedures that ensure that all costs are necessary, reasonable, allocable, and allowable 5. Procedures that track the source of funds 6. Procedures that track the allocation or planned use of funds 7. Procedures that track the application or use of funds 8. Procedures that track the person who authorized the use of funds to pay expenses Audit Practices 9. Procedures that require organization-wide audits, or program specific audits if applicable, to determine, at a minimum, the fiscal integrity of financial transactions and reports, compliance with laws, regulations, and administrative requirements 10. Procedures that ensure that there is a systemic method for assuring timely and appropriate resolution of all audit findings and recommendations, including organization-wide strategies Texas Department of Agriculture April 3, 2018 Financial Information 14.17

18 Definitions for This Section The nature of financial processes fosters the use of terms and vocabulary that are more commonly used by accountants than by school nutrition or school staff. For this section, the following terms will be used: Acting on Behalf of CE Allocable Audit Audit Report Audit Corrective Action Plan Audit Summary Schedule or Work Plan Capital Expenditures Charge Period Cost Objective Direct Cost Equipment (Property) Entity or person who has been given the responsibility to take action for the CE. Assigning a cost, or group of costs, to one or more cost objectives, in reasonable and realistic proportion to the benefit provided or other equitable relationship the cost meets one of the following principles: - is incurred specifically for the award/program or - benefits both the award/program and necessary work and can be distributed in reasonable proportion to the benefits received or - is necessary to the overall operation of the organization, although a direct relationship to any particular cost objective cannot be shown. Direct or indirect costs that may be paid by SNP funds. Independent examination of accounting and financial records for accuracy, efficiency, and consistency. This is also called the annual audit or single audit. Final summary of audit findings provided by a financial auditor. Plan in which the CE describes the strategies or actions the CE will adopt to address each finding reported in the audit report. Document that contains a cumulative list of audit findings by year and explanations of the strategies and actions the CE plans to take or has taken to resolve each audit finding. This summary allows the CE, auditor, or TDA staff member to review the actions planned or taken from year to year to maintain an accurate, efficient, and consistent accounting and financial system. Direct cost expense for an item to be used for general purposes and intended to be used for multiple years. 6 Span of time during which a cost is paid. This payment process includes spreading payments over a period of weeks or months or establishing milestones that are linked to payments. Program function or activity for which cost data and for which specification is made to accumulate and measure the cost of processes, products, jobs, or other expenses. Expenses that can be identified specifically with a particular cost objective used to meet a specific program goal or goals. Items which have been purchased and are nonexpendable; items have a useful life of more than one year. Equipment purchases of $5, 000 or more are capital expenses and require prior approval. 7 6 TDA must approve capital expenditures before a CE makes a capital expenditure purchase. 7 See the Capital Expenditures subsection in this section for additional information on this requirement. Texas Department of Agriculture April 3, 2018 Financial Information 14.18

19 Excessive Fund Balance (Net Cash Resources) Exclusive Contract (Including Exclusive Beverage Contracts) Expenditures (Costs) Fund Balance (Net Cash Resources) Indirect Cost Indirect Rate Internal Control LEA Necessary Negative Fund Balance (Net Cash Resources) Net Cash Resources Fund balance that exceeds three months of operating expenses. For NSLP and SBP an excessive fund balance refers to net cash resources. [NOTE: Guidance and regulations use the term excessive fund balance for this circumstance. In this circumstance, the regulation is actually referring to excessive net cash resources, the amount of funds the SNP account has available to spend, as in the total revenue less total liabilities (expenditures).] Contract between an entity or organization and a distributor/vendor that prevents the entity or organization from buying or selling similar products from other distributors/vendors. The distributor/vendor may offer the entity or organization financial, product, or service incentives for signing an exclusive contract. Mount of money that is spent on an item or service. The net cash resources available in the CE s food service account. A CE must not carry a negative fund balance into the next school year or maintain an excessive fund balance on hand. Expenses that are incurred for the benefit of multiple programs or functions and are necessary for the general operation of the SNP program but cannot be directly attributable to the program. Established percentage of awarded funds that is dedicated to pay costs that have been identified as indirect costs. Process designed to establish and maintain effective internal control over the SNP s financial management system that provides reasonable assurance that the CE is managing the program in compliance with all federal, state, and local regulations and terms and conditions of the program award. Local education agency, an entity having administrative control and direction of a public or private nonprofit elementary or secondary school. 8 Item or service that is essential to the operation of the program. Negative fund balance (net cash resources) at the end of the school year A CE must not carry a negative fund balance into the next school year. A negative fund balance exists when all net cash resources have been depleted, and the resulting negative balance constitutes a liability to the organization. Amount of funds the SNP account has available to spend total revenue less total liabilities (expenditures). USDA further defines Net Cash Resources as This includes all monies, as determined in accordance with the State agency s established accounting system that are available to or have accrued to a school food authority s nonprofit school food service at any given time, less cash payable. Such monies may include, but are not limited to, cash on hand, cash receivable, earnings on investments, cash on deposit and the value of stocks, bonds or other negotiable securities. See the Effective Accounting Systems subsection in this section for additional information on the standards for an effective financial management system. 8 This definition is taken from USDA regulation. Texas Department of Agriculture April 3, 2018 Financial Information 14.19

20 Operating Months Program Integrity Program Specific Audit Reasonable Revenue Revenue to the School Nutrition Program (SNP) Account Single Audit State Matching Funds Supplies Unallowable Unit Cost Months during the school year that CEs operate any child nutrition program NSLP, SBP, or the summer feeding programs Organized and structurally sound financial management system that promotes program efficiency and prevents the inappropriate use of program funds. Review of the financial transactions income and expenditures and accounting procedures for a designated program. Amount that does not exceed a cost that would be incurred by a prudent person under similar circumstances. Income received by an organization. All income that is collected or awarded to the SNP account is revenue (or income) to the SNP account. This includes, but is not limited to, the following: Federal reimbursement State or local funds, such as per meal subsidies and state revenue matching funds Students payment for reimbursable meals and a la carte sales Payments for items purchased for fund raisers and vending machines Income from catering and adult meals Organization wide review of the financial transactions income and expenditures and accounting procedures. Matching funds provided to local education agencies (LEAs) that participate in NSLP by the state of Texas based on the number of lunches reported on reimbursement claims filed during the period of September 1 through August 31 of the prior year. RCCIs and private schools do not receive state matching funds. Items that are expendable or consumed in day-to-day activities and replenished as needed. Any cost 9 that cannot be paid by SNP funds. Cost for a single item. Revenue (Income to the Program) All revenues received by or accruing to the SNP account must only be used for the operation and improvement of the school nutrition program. Types of Revenue Revenues include, but are not limited to, the following sources of income: Catering departments operated by the SNP Credits, discounts, and rebates awarded for the purchase of products or services as well as the value of USDA Foods 10 Earnings on SNP investments 9 Includes direct and indirect costs 10 See the Administrator's Reference Manual, Section 17, Procurement for additional information on this topic. Texas Department of Agriculture April 3, 2018 Financial Information 14.20

21 Federal and state reimbursements received by or accruing to the SNP account Non-federal funds supporting the meal or milk programs Other local revenues that support the meal or milk programs Snack bar and a la carte incomes Student and adult meals or milk in the National School Lunch Program (NSLP), School Breakfast Program (SBP), or Special Milk Program (SMP) Vending machine income if operated by the SNP 11 Catering If the SNP operates a catering program, it must ensure that the income received for catering events covers the full cost of preparing and serving the catered items. Fundraising The CE may use funds from its SNP fundraising activities for any allowable cost. 12 Funds Raised by Recycling If SNP funds are used to purchase recycling equipment or products purchased with SNP funds are recycled, any funds raised from these efforts must be credited to the SNP financial accounts. If the cost and items for recycling is shared with other programs, any funds raised from these efforts must be credited to the SNP financial accounts in proportion to the SNP contribution. Investments Earnings on investments using SNP funds totally or in part for investment purposes must accrue to the SNP account and must be used for authorized program purposes. Revenue from Meal Service That Incudes USDA Foods All income that comes from any meal service in which USDA Foods were used must be deposited into the nonprofit school food service account and must be used for the operation or improvement of such service. These funds cannot be deposited into a separate account (i.e., catering or vending). Moreover, the CE cannot reimburse the nonprofit school food service account for the value of the USDA Foods in lieu of depositing all income that comes from these meals into the nonprofit school food service account. 11 Items sold in vending machines must adhere to the requirements of the competitive food requirements. See the Administrator's Reference Manual, Section 20, Competitive Food Nutrition Standards for additional information on this topic. 12 See Fundraising, Actions to Raise Funds for the Program under the General Expenditures and Unallowable Costs subsection in this section for additional information on this topic. Texas Department of Agriculture April 3, 2018 Financial Information 14.21

22 End of Year Fund Balance (Net Cash Resources) Any positive balance remaining in the SNP account at the end of the school year must be carried over to the next school year as the beginning balance in the SNP account. Any negative balance in the SNP account at the end of the year must be cleared by funds from non-snp sources. A CE cannot carry a negative fund balance (net cash resources) into the next school year. A negative fund balance exists when all net cash resources have been depleted, and the resulting negative balance constitutes a liability to the organization. Excessive Fund Balance (Net Cash Resources) To maintain the nonprofit status required for the SNP, the fund balance (net cash resources 13 ) of the SNP account must not exceed three month s average expenditures at any time. The Excessive Balance (Net Cash Resources) Calculation Chart provides an explanation and examples of how to determine if the CE has an excessive fund balance. Excessive Balance (Net Cash Resources) Calculation Chart Determine the CE s average monthly operating expenses by dividing the prior year s expenses by the number of months in operation in the prior year. Prior Year s Expenses Number Months in Operation Prior Year 14 Average Monthly Operating Expenses $900, = $90,000 Determine if the CE has an excessive fund balance (net cash resources) by comparing the total net cash on hand (Amount A) to three month s average expenses (Amount B). Amount A Current Operating Balance Total Net Cash Resources on Hand Average Monthly Operating Expenses (amount calculated for Average Monthly Operating Expenses) Amount B Three Month s Average Expenses $200,000 $90,000 x 3 = $270,000 If Amount A is larger than Amount B, the CE has an excessive operating balance and needs to submit a plan for eliminating its excessive balance to TDA. Resolving an Excessive Fund (Net Cash Resources) Balance If an excessive fund balance occurs, the CE must immediately take steps to reduce its net cash resources or have an acceptable plan for using surplus net cash resources. Since program funds must be used only for program purposes, excess net cash resources must be reduced by improving the quality of food served 15 or purchasing needed supplies, services, or equipment. 13 While guidance and regulations use the term excessive fund balance in this circumstance, the regulation is referring to excessive net cash resources, the amount of funds the SNP account has available to spend, as the total revenue less total liabilities (expenditures). See the Definitions subsection in this section for a more detailed definition. 14 Number Months in Operation Prior Year includes any month when the CE was operating any meal program. This includes summer feeding programs. 15 TDA s Boost Meal Appeal website provides numerous resources that CE may use to improve the quality of food served. These resources are available at Texas Department of Agriculture April 3, 2018 Financial Information 14.22

23 The plan must be submitted to the Texas Department of Agriculture (TDA) on the Plan for Reducing an Excessive Operating Fund Balance 16 form which is available on TDA s SquareMeals website ( The plan must provide the following: Explanation of how the CE will reduce the fund balance (net cash resources) to an acceptable level within one year by improving the quality of food served or by purchasing needed supplies, service, or equipment 17 Explanation of what the CE will do to ensure that an excessive fund balance (net cash resources) will not occur in the future Special Guidance, Excessive Fund Balance (Net Cash Resources) Allowing net cash resources to build up in the food service account for an extended period to save for a future project is unallowable. If the proposed expenditure project is a construction project, construction projects are typically not allowable. Reimbursement Rates Reimbursement rates are updated annually by USDA and can be found on the TDA website at For additional information on this topic, see the Administrator s Reference Manual, Section 7, Counting and Claiming. State Matching Funds Public school districts and charter schools participating in NSLP receive an annual payment of state matching funds based on the number of lunches reported on reimbursement claims filed during the previous year from September 1 through August 31 as required by federal law. These funds are deposited each spring into the each public school district and charter school account. The funds must be used for SNP operation and improvement. Expenditures (Costs) Revenues must be used for expenses that are necessary for SNP operation and improvement. This includes, but is not limited to, food, equipment, supplies, and program personnel. SNP account funds must not be used for expenditures that are not directly related to the SNP operation and improvement even though the SNP account may be part of the CE s general fund. All expenditures must be reasonable, allowable, and allocable. 16 Additional directions on how to submit the form are located on the form itself. 17 An excessive operating food service fund balance (net cash resources) cannot be reduced by altering children s meal pricing structures when altered pricing conflicts with the paid lunch equity requirements. See the Administrator s Reference Manual, Section 15, Meal Pricing for additional information on this topic. Texas Department of Agriculture April 3, 2018 Financial Information 14.23

24 All financial transactions related to expenditures are subject to the procurement regulations described in the Administrator's Reference Manual, Section 17, Procurement. CEs must use that guidance in addition to the guidance in this section to ensure that they are in compliance with all regulations related to financial management. CEs must use the following guidance in determining if an expense is allowable. Direct or Indirect Costs All costs are either categorized as direct or indirect. Direct Cost Direct cost is defined as expenses that can be identified specifically with a particular cost objective used to meet a specific program goal or goals. For Example: Cost of food, staff salaries, supplies, and media materials related to the food service program Indirect Cost Indirect cost is defined as expenses that are incurred for the benefit of multiple programs or functions and are also necessary for the general operation of the SNP program, but these expenses cannot be directly attributable to the program. Expenses that can be directly attributable to the program should be classified as direct costs. Costs that can be directly attributable to the program include, but are not limited to, payroll services, building utilities, contracted services specific to the SNP, and food costs. Types of Indirect Costs There are two types of indirect rates: restricted and unrestricted: Restricted: If the grant funds specify that you cannot supplant funds, you have to use restricted. Unrestricted: If the grant funds specify that you can supplant funds, you can use unrestricted. For indirect costs, supplant means the use of federal funds to replace funds that would normally come or should come from state or local funds. Federal regulations prohibit the use of federal funds to supplant funds; therefore, a restricted indirect rate has to be used. For public schools and charter schools, the Texas Education Agency (TEA) provides detailed guidance to CEs operating under its jurisdiction on the TEA website at direct_cost_rates/indirect_cost_rates/. This guidance includes, but is not limited to, information on what types of items may be included in the indirect cost category. Texas Department of Agriculture April 3, 2018 Financial Information 14.24

25 Questions Related to Determining Direct or Indirect Costs In determining whether a cost should be a direct or indirect cost, the CE should use the following questions to help decide whether the cost is direct or indirect: Questions to Consider Does the cost benefit multiple programs or other cost objectives, or is it solely for the school food service? Does the cost have a direct relationship to the operation of the SNP? How are similar costs treated in other cost objectives? How has this cost been treated in the past--an indirect or direct cost? Are unallowable costs included in the calculation for direct and indirect costs? Do regulations allow a CE to use restricted or unrestricted indirect rates for SNPs? Common Practices Costs that are common to more than one program are typically appropriate to allocate as indirect costs. Costs which are unique to a specific program are typically appropriate to allocate as direct costs. Costs which are unique to the SNP are commonly direct costs. CEs must apply direct and indirect costs consistently across all programs. CEs must treat costs as direct or indirect consistently over time. When a CE applies its indirect cost rate, all unallowable expenses must be removed from the total numbers before the calculation is made. USDA regulations require that CEs use a restricted indirect rate, i.e., federal funds cannot be used to supplant funds that would normally come or should come from state or local sources. Method for Calculating Indirect Costs SNPs use a specific method for calculating indirect costs: CEs determine the direct cost base. Then, multiply the direct cost base by the restricted indirect rate to calculate the indirect cost base. The indirect cost base is the amount of indirect costs that can be applied. Direct Cost Base x Indirect Cost Calculation Chart Restricted Indirect Rate = Indirect Cost Base (Amount of Indirect Cost) The direct cost base plus the direct cost items excluded from the direct cost based plus the indirect cost base equals the total cost or expenses for the CE. Calculate Total Costs or Expenses for the CE Direct Cost Base + Direct Cost Items Excluded from Direct Cost Base + Indirect Cost Base (Amount of Indirect Cost) = Total Costs or Expenses for the CE Indirect Costs, Contracts or Purchases Exceeding $25,000 Under USDA regulations, contracts or purchases that exceed $25,000 must not be included in calculation for the indirect cost base. Texas Department of Agriculture April 3, 2018 Financial Information 14.25